Estimating Firms’ Vulnerability to Short-Term Financing Shocks: The Case of Foreign Exchange Companies in Pakistan
Using firm-level balance sheet data for 20 of the 24 exchange companies in Pakistan for the period 2006–11, we explore the sources of firms’ vulnerability to short-term financing shocks. Based on the probability estimates of a maximum likelihood binary probit model, this paper shows that the incidence and degree of vulnerability of foreign exchange companies to short-term financing shocks has risen significantly over time. If not managed opportunely, these shocks can cumulate into long-term financing shocks and even lead to corporate failure in the long run. Our regression results show that the corporate managers of these companies cannot ignore macroeconomic factors such as global changes and the macroeconomic environment (inflation and GDP growth) in addition to firm-specific factors (growth opportunities, firm size, permanent earnings, earnings volatility, and working capital management) when managing their firms’ vulnerability to short-term financing shocks.
Volume (Year): 18 (2013)
Issue (Month): 2 (July-Dec)
|Contact details of provider:|| Postal: Intersection Main Boulevard Phase VI DHA and Burki Road, Lahore|
Phone: (92-42) 6560939
Web page: http://www.lahoreschoolofeconomics.edu.pk/EconomicsJournal/LJEIntro.aspx
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Reynolds, Stephen, et al, 2002. "Forecasting the Probability of Failure of Thailand's Financial Companies in the Asian Financial Crisis," Economic Development and Cultural Change, University of Chicago Press, vol. 51(1), pages 237-246, October.
- Kevin Cowan & Jose De Gregorio & Alejandro Micco & Christopher Neilson, 2007.
"Financial Diversification, Sudden Stops and Sudden Starts,"
Working Papers Central Bank of Chile
423, Central Bank of Chile.
- Kevin Cowan & José De Gregorio & Alejandro Micco & Christopher Neilson, 2008. "Financial Diversification, Sudden Stops, and Sudden Starts," Central Banking, Analysis, and Economic Policies Book Series, in: Kevin Cowan & Sebastián Edwards & Rodrigo O. Valdés & Norman Loayza (Series Editor) & Klaus Schmidt- (ed.), Current Account and External Financing, edition 1, volume 12, chapter 5, pages 159-194 Central Bank of Chile.
- Martin, Daniel, 1977. "Early warning of bank failure : A logit regression approach," Journal of Banking & Finance, Elsevier, vol. 1(3), pages 249-276, November.
- Gregory R. Gajewski, 1989. "Assessing the risk of bank failure," Proceedings 250, Federal Reserve Bank of Chicago.
- Patnaik, Ila & Shah, Ajay, 2010.
"Does the currency regime shape unhedged currency exposure?,"
Journal of International Money and Finance,
Elsevier, vol. 29(5), pages 760-769, September.
- Ajay Shah & Ila Patnaik, 2009. "Does the Currency Regime Shape Unhedged Currency Exposure?," Working Papers id:2049, eSocialSciences.
- Patnaik, Ila & Shah, Ajay, 2008. "Does the currency regime shape unhedged currency exposure," Working Papers 08/50, National Institute of Public Finance and Policy.
- Merton, Robert C, 1974.
"On the Pricing of Corporate Debt: The Risk Structure of Interest Rates,"
Journal of Finance,
American Finance Association, vol. 29(2), pages 449-470, May.
- Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Coleen C. Pantalone & Marjorie B. Platt, 1987. "Predicting commercial bank failure since deregulation," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 37-47.
- Gerald A. Hanweck, 1977. "Predicting bank failure," Research Papers in Banking and Financial Economics 19, Board of Governors of the Federal Reserve System (U.S.).
- Jorge A Chan-Lau & Toni Gravelle, 2005. "The END; A New Indicator of Financial and Nonfinancial Corporate Sector Vulnerability," IMF Working Papers 05/231, .
- Gary Whalen, 1991. "A proportional hazards model of bank failure: an examination of its usefulness as an early warning tool," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 21-31.
- Herman Kamil, 2012. "How Do Exchange Rate Regimes Affect Firms' Incentives to Hedge Currency Risk? Micro Evidence for Latin America," IMF Working Papers 12/69, .
- Pettway, Richard H & Sinkey, Joseph F, Jr, 1980. " Establishing On-Site Bank Examination Priorities: An Early-Warning System Using Accounting and Market Information," Journal of Finance, American Finance Association, vol. 35(1), pages 137-150, March.
- West, Robert Craig, 1985. "A factor-analytic approach to bank condition," Journal of Banking & Finance, Elsevier, vol. 9(2), pages 253-266, June.
When requesting a correction, please mention this item's handle: RePEc:lje:journl:v:18:y:2013:i:2:p:147-163. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shahid Salahuddin)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.